Canopy Growth Corp (TSE:WEED) Leads Surge Higher In Cannabis Stocks

Benjamin A. Smith
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Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1) lead the cannabis sector higher today, as two important catalysts helped fuel the rally. The strong price action was immediate and decisive, with the sector leader climbing right from the opening bell.

The first impetus was a full length documentary produced and aired by CNN yesterday, titled Weed 4: Pot vs. Pills. The special report was the fourth in a series which last aired in 2015 (Weed 3: The Marijuana Revolution). The high-profile documentary reflects favorably on cannabis consumption as a legitimate substitute for opioids for people seeking pain management solutions.

Of course, CNN’s report is nothing new or groundbreaking to investors in the space. However, for a sector in search of a compelling catalyst to fire up investors, the report hit the mark. Especially true considering sector price action had been grinding down on moribund volume recently. From that standpoint, the added media attention helped clear the decks of sellers and allow bulls to generate some breathing room. If marijuana consumption can cut into the pharmaceutical opioid market even moderately, Big Cannabis stands to gain billions in profits.

While the well-timed CNN piece helped flip cannabis investing sentiment for the time being, another catalyst also promoted investor participation.

Earlier this morning, it was reported that Canada’s biggest pension funds are backing pot stocks. Several large Canadian pension funds have entered the fray by making early investments in cannabis companies. This included the likes of provincial pension funds Alberta Investment Management Corp. (approx. $100 billion AUM) and British Columbia Investment Management Corp., who were among a list of around 50 investors who participated in Canopy Growth’s $200.7 million bought-deal financing in January. The list also includes Canada Post’s pension fund, which in 2016 had $23.1 billion under management.

Ultimately, when provincial crown corporations start entering the fray, legitimacy has essentially arrived. While some of the upcoming investment will no doubt be linked to forced indexing (Canopy Growth and Aurora Cannabis were both added to the S&P/TSX Composite Index this year), it’s likely some substantial stand-alone investment will take place. If and when pension funds start undertaking five-percent-plus positions in individual cannabis companies, investors will know validity of the highest magnitude has been obtained. Big Cannabis might as well be Molson Coors Brewing Company or Loblaw Companies from an investment prestige standpoint.

Looking at Canopy Growth specifically, price action was encouraging. While still lagging under its 3-month average, volume rang in a 4,341,591 shares, the most in two weeks. The stock closed above its 100-Day MA and slightly above the important 50-Day MA, where prices have grappled in the recent path. The price action is also notable as it moves the symmetrical triangle goalposts that much closer to resolution. Given the defined nature and still-strong volume profile of the technical pattern, we expect a major surge in the coming week(s).

Aurora Cannabis experienced much the same move, albeit with moderately less gusto. Unlike Canopy Growth, the company had two notable news items today.

First, a writer in the Australian Financial Review suggested that Aurora was preparing to acquire a cannabis licensee in Australia named Cann Group Limited. The speculation was that Aurora Cannabis—currently the largest shareholder of Cann Group—might make a play for a super-majority stake at $4.50/share.

Secondly, the company announced it had partnered up with Mitacs to fund a University of Alberta research program studying the health outcomes associated with cannabis use. The subsequent results are intended to be submitted for publication by an accredited journal. No financial commitment details were disclosed.

Although aggregate volume finished well below its 3-month average, shares traded hands at the most brisk pace since April 16. Unlike Canopy Growth, Aurora Cannabis did not experience a third power move higher at the close. It appears investors were content to hold serve after the on-open surge, which lasted until just after 11am.

Perhaps chart quality is the deciding factor here . Before Aurora Cannabis can get into stronger technical position, it needs get into striking distance of the 50 and 100-Day moving averages, which rest at $9.59 and $10.06 respectively. Despite today’s move, there’s still a long way to go.

Here were the rest of the sector numbers at-large:

Company Closing Price Loss/Gain % Loss/Gain Volume
Canopy Growth Corporation 30.11 2.76 10.09% 4.34m
MedReleaf Corp. 21.06 1.18 5.94% 731.38k
Emerald Health Therapeutics Inc. 4.65 0.25 5.68% 445.95k
The Hydropothecary Corporation 4.31 0.23 5.64% 2.47m
Aurora Cannabis Inc. 8.09 0.43 5.61% 8.93m
Namaste Technologies Inc 1.6 0.07 4.58% 3.46m
OrganiGram Holdings Inc 4.07 0.16 4.09% 453.60k
Cannabis Wheaton Income Corp. 1.59 0.05 3.25% 1.84m
THC Biomed Intl Ltd 1.28 0.03 2.40% 173.73k
Aphria Inc. 10.03 0.23 2.35% 3.94m
CannTrust Holdings Inc. 6.98 0.15 2.20% 333.41k
Newstrike Resources Ltd. 1.03 0.02 1.98% 698.20k
Abcann Global Corporation 1.64 0.03 1.86% 585.35k
MYM Nutraceuticals Inc 1.73 0.03 1.76% 320.17k
Cannabix Technologies Inc 1.85 0.03 1.65% 240.92k
Cronos Group Inc. 6.91 0.11 1.62% 1.80m
Emblem Corp 1.52 0.01 0.66% 296.12k
Invictus MD Strategies Corp 1.75 0.01 0.57% 251.00k
Hiku Brands Company Ltd. 1.44 0 0.00% 669.10k
Maricann Group Inc. 1.6 0 0.00% 1.17m
WeedMD Inc. 1.76 -0.01 -0.56% 323.31k
The Supreme Cannabis Company Inc. 1.56 -0.01 -0.64% 441.08k
Isodiol International Inc. 0.8 -0.01 -1.23% 1.77m
CanniMed Therapeutics Inc. 28.5 -0.5 -1.72% 58.66k
InMed Pharmaceuticals Inc. 1.1 -0.02 -1.79% 353.43k

Note: Mid/large cannabis companies noticeably outperformed small cap today. Perhaps this is in direct relation to the pension fund news described above.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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bsmith@midasletter.com |

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